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CVC Asian Strategy:Invest in All Kinds of Industries and State-owned Enterprises
  Date:2013.09.28  Hit:288次
CVC, a leading PE fund in European, has gradually marched on the Asian Market with more investment and opportunity of restructure. Especially, they attach more importance to the Chinese market.

F1: Institutionalize family enterprises

In March of 2006, CVC acquired 75% shares of F1 Company from the former shareholders at great expense (reported by more than USD 1 billion) and cooperated with the former top management.

The insiders of CVC think that participation to F1 operation will benefit to help the family enterprise becoming an institutionalized and value-added company. However, CVC strengthened that F1 would employee the former top managements who are in charge of the operation management of the company.

At present, CVC has designated two independent directors, i.e. Peter Brabeck, the Board Chairman of Nescafe, who is a CEO of Nescafe and Martin Sorrell, CEO of WPP group, to help the top management operate.

Furthermore, the company will propose to implement the top management’s share scheme inside of F1.

In the before, due to benefits distribution, more teams have heavy conflict and dispute with Bernie and the affiliated companies under its flag so that GPMA was established by Renault, BMW, Mercedes, Honda and Toyota.

GPMA once said that they would exit from F1 in 2008 and hold their formula racing to challenge with the exist system of race.

Bernie is at a nonplus by GPMA: Once more than half of members exit from F1, the race he has engaged in for more than fifty years can hardly continue. Besides the impact of profits, the inestimable loss must come one after another.

Finally, with negotiation with the board of directors, Bernie and the former shareholders sold partial equity to CVC so that five teams were retained indirectly.

Once the new shareholders entered into F1, they sincerely persuade that the five members should retain. In the half of this year, the 208-2012 business agreement was made by and among the 11 teams and F1 Management Company to continue the biggest sporting event.

The agreement made by and among the 11teams and F1 is so-called Concord Agreement, i.e. a contract with several hundred of pages shall be made by and among the 11 teams and F1 Management Company to bind the rights and obligations of all parties including benefits distribution etc.

Increase Racing Cities

Some peoples guess that the reform of CVC is an important concession of profits to the teams. He Zhijie, the Asian Managing Director of CVC said that it was a business scheme at interview by China Business News.

If the racing cities are increasing, F1 will make more cash incomes.

In 2007, F1 had 17 racing cities. He zhijie said that F1 will hold race in Singapore and Valencia in Spain in 2008 and in Abu Dhabi and S. Korea in 2010.

“Now, we are studying the feasibility of cooperation with India. In the future, we will hold the race in Japan. The increment of racing cities will bring about the sale of broadcast rights and push the advertisers and sponsors to join.

He Zhijie represented why the former shareholders transferred the shares to CVC: Firstly, the former shareholder’s working capital turnover is bad. Secondly, they highly praised the good operation of CVC in MotoGP which is also a major sporting race.

In 1998, CVC acquired Spanish Dorma Company by £45 million. Dorma is an owner for the advertising right of MotoGP. Because the performance is soaring, the transaction value between CVC and the new buyer is £340 million by seven times of profits in 2006.

During the operation of MotoGP, CVC has taken more measures to earn more profits. Cooperated with Mr. Mora, CEO of Dorma, CVC has introduced more teams to fill the schedule so that the income of racing field and advertisement climbed again and again through live TV display.

CVC expects that the profit of F1 will increase by 10%. The company will engage in the business of mobile phone and network other than advertising income and introduction of new racing field.

Asian Strategy: USD5 billion will be raised in the end of year

Although CVC is a leading company in Europe, it has extended it business to the other parts in the world. For acquired companies in Asia, the business has already been beyond the other PE companies. CVC (Asia) Company invests long-and-medium term enterprises involving more industries.

In Australia, most of the biggest acquired projects are awarded by CVC. CVC has invested PBL which is a large Australian media company. It is also one of the shareholders of DCA which is a local diagnosis center. In Japan, CVC has also invested Skylark F&B Group.

At present, CVC Asian team holds USD 2.7 billion. They will raise a lump sum of USD 5 billion in the end of year.

“For the USD5 billion, we will invest in Australia, Japan and Southeast Asia by the proportion of 3:3:4,” He Zhijie said, “ we will invest more in China.”

Low-keyed CVC has negotiated with Chenming Paper Group (000488.SZ)which is a listed company. In this year, equity participation in Zhuhai Zhongfu (000659.SZ)will make CVC become the largest shareholder.

In 2006, CVC (Asia) Company acquired Plantation Timber Products (PTP) Group which engage in high-density fiberboard and floor covering by USD100 million. “After equity participation in PTP, the company has made a segmentation of the products. Meanwhile, we invited the former CEO of International Paper to be our chairman of Board of Directors, “He Zhijie said.

Based on the cases in China, you may find that CVC is not an Angel investor. It will prefer to invest the top ones in the industry.

Li Zihong, who is an investment director of CVC (Asia) Company, says that the target enterprise they invest should be valued from USD 300 million to USD 5 billion with USD 40 million of annual profit. Furthermore, the enterprise should lead the industry which develops rapidly.

“You may notice that we are very interested in the consumables. Both Zhuhai Zhongfu and PTP are consumables enterprises which served for the customers directly. The consumable in China has developed rapidly in recent years, which is a potential industry. But we will acquire the industrial enterprises, of course.” He Zhijie said. He also regards the multi-industry acquisition as a distinct characteristic of the company.

Lin Zihong also said that the company would not invest the real estate. “The method of analysis for the real estate is different from the others. Therefore, we will not invest the real estate.”

CVC Strategy: Investment in all kinds of enterprise and state-owned enterprises will benefit to disperse and decrease risk.

For transaction forms, CVC will adopt to use the management buy out (MBO), acquire equity of the listed companies and de-list them, and hold shares (or invest major equity) etc.

“The company will not want to hold the investment enterprises in an all-round way. However, we must influence the acquiring enterprise,” Lin Zihong said, “That is, we must have rights to speech on the issues such as major decision-making etc.”

For the reported “More PE funds contest the Asian market, He Zhijie said:”70% of our Asian projects are found by ourselves, of which, we have directly visited more Chinese projects. In Europe, it is dog-eat-dog. The equity for the most of European project is transferred by auction. Considering the acquisition and investment, the Asian potential is only just emerging.